Death of Spirit Airlines Is a Warning About US Merger Evaluation

The shutdown of Spirit Airlines exposed a significant flaw in the government’s process of evaluating mergers which blocked the Spirit–JetBlue merger to preserve competition that, now, two years later no longer exists.

Seventeen thousand jobs were lost. Millions of seats sold at bargain prices have been removed from the market. Passengers that counted on the bargain-basement prices offered by Spirit are left with an American air travel market controlled even further by the Big Four airlines.

Regulators and courts are left with a question they would rather not answer: Did merger enforcement preserve competition, or did it accelerate the elimination of one of the few remaining price-disrupting airlines in America?

JetBlue tried to merge with Spirit Airlines in 2022, claiming the merger would help the carrier sustain itself while competing aggressively against other legacy carriers. In 2023, the Justice Department sued to block the transaction, arguing it would reduce competition and harm consumers by eliminating Spirit as an independent ultra-low-cost competitor.

In January 2024, Judge William Young agreed and blocked the deal in United States v. JetBlue Airways Corp., holding that the merger likely would lessen competition in violation of Section 7 of the Clayton Act. The court concluded that Spirit represented a meaningful competitive force and rejected JetBlue’s argument that Spirit’s deteriorating finances justified the merger under the failing-firm doctrine.

Regulators and enforcement advocates framed the ruling as a victory for consumers and competitive markets. But less than two years later, Spirit is gone entirely.

The government intended to preserve a competitor in the airline industry but now consumers have fewer choices, which will drive up the price of fares in a dwindling airline market.

Spirit Airlines’ demise is indicative of two key trends: overly rigid interpretation of the failing-firm defense, and a failure to consider the long-term consequences of blocking consolidation.

Current law maintains an overly narrow interpretation of the failing firm doctrine. For it to apply, a company must prove imminent bankruptcy, impossibility of restructuring, and inability to sell the business to another party. In effect, the approach treats companies that are financially distressed as competitive firms until the very moment of bankruptcy.

That strict standard greatly reduces the work for regulators in a way that on its face should help consumers but, in reality, is a less rigid standard that promotes a deeper analysis of the failing firm doctrine would produce better results for consumers.

For years, Spirit faced mounting debt obligations, operational instability, rising fuel costs, and growing competitive pressure from larger carriers with far stronger balance sheets. Yet merger review largely treated Spirit with an assumption that it would remain an independent competitive force indefinitely.

Modern antitrust analysis has become increasingly focused on static market concentration metrics while giving insufficient weight to long-term competitive viability. Herfindahl-Hirschman Index scores and concentration thresholds flag potential problems but completely ignore a company’s’ viability down the road.

Courts have recognized this principle before. In United States v. General Dynamics Corp., the Supreme Court acknowledged that market share statistics can overstate a firm’s future competitive significance when underlying business realities point in the opposite direction.

This “weakened competitor” rebuttal—distinct from the failing firm defense—was credited in FTC v. Arch Coal (D.D.C. 2004), and most recently in New York v. Deutsche Telekom AG, where Judge Victor Marrero blessed the T-Mobile/Sprint merger after finding Sprint’s market share “misleading as an indicator of its competitiveness.”

The factual parallels to Spirit are striking. Yet the 2023 merger guidelines, which were upheld in a February 2025 memorandum by current antitrust leadership, don’t separately recognize this rebuttal despite the American Bar Association’s urging to do so.

Spirit’s collapse suggests the existing framework may place too little weight on whether blocking a merger ultimately will leave consumers better off in the future. Acting Assistant Attorney General Omeed Assefi at the DOJ Antitrust Division, Federal Trade Commission Chairman Andrew Ferguson, and their respective departments should learn three things from Spirit’s failure:

First, greater emphasis is required on forward-looking competitive viability data in lieu of relying on static snapshots of the existing market share.

Second, policy makers should review whether the failing firm defense has become overly restrictive in today’s markets, especially for capital-intensive industries susceptible to fast financial decline.

Third, antitrust policies must refocus on the core objective of consumer protection, which demands a broader analysis than market share percentages.

Former Justice Department leadership flagged the structural-presumption thresholds for potential revision due to mounting political pressure to revisit the failing-firm and weakened-competitor framework since Spirit’s collapse.

Preventing a merger is only a win if consumers come out better on the other side. With respect to the airline industry and other capital-intensive markets, the collapse of Spirit Airlines suggests that a deeper analysis into the long-term viability of a company must be a required part of regulator’s analyses.

Failing to adopt an anticipatory approach may very well lead to more undesirable outcomes like Spirit Airlines.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Christopher Gowen is an adjunct professor of law at American University Washington College of Law and University of Baltimore School of Law with a consumer protection research focus.

Write for Us: Author Guidelines